Once in IDR/IBR/PAYE/REPAYE, Always in IDR/IBR/PAYE/REPAYE

“I got married” or “My income went up” and “they MADE me change repayment plan because I didn’t qualify anymore.”

No no no. They cannot make you do this. You are never forced to leave a federal repayment plan once you have been accepted for it, ever (unless you are not making your payments or don’t submit your annual income certification).

When in an Income-Driven Repayment (IDR) plan like IBR, PAYE, or REPAYE, payments may change annually—but the plan does not. People are more aggressive in negotiating their cable bill than they are in dealing with student loans servicers! Switching the acronym of your payment plan not only capitalizes your accrued interest but can easily cost could thousands or even tens of thousands of dollars.

If you lose your personal financial hardship while enrolled in IBR or PAYE, your interest capitalizes, but you’re not kicked out of the plan, and you are not forced to choose a new plan. Because you “no longer qualify” for the plan, your payments are capped at the 10-year standard repayment amount. “No longer qualify” is deliberating confusing phrasing. Yes, at this point, if you were to freshly apply, you would not qualify and would not be accepted into the plan. But guess what? You’re not applying, you’re just recertifying your income to determine your monthly payment amount. It doesn’t matter if you get married or if you win the lottery. Your plan is your plan until you choose otherwise. You don’t need to “qualify” anymore: once in IBR, always in IBR. Once in PAYE, always in PAYE.

People are being told during their annual income recertification that they need to switch from IBR and PAYE to REPAYE once they lose a PFH, and that is incorrect. All switching does is unnecessarily subject borrowers to uncapped higher monthly payments. The problem is, once you’ve switched to REPAYE on this bad advice, you can’t switch back (because you don’t qualify, see what they did there?).

You can never tell if this is ignorance or malevolence, but given that this is generally coming from FedLoan in the context of borrowers planning for PSLF, a “mistake” like this that results in borrowers spending more per month and getting less forgiven does look pretty suspicious.

Bottom line: This is just wrong. If you file your forms on time and make your monthly payments, your plan will never change.

Don’t let anyone tell you otherwise.

2 Comments

  1. Is there a situation where you would switch from IBR to REPAYE after you start making more money? Choosing the right plan from the beginning would be most ideal, but some of us got into IBR before REPAYE was an option. Let me give you an example, working only with discretionary income amount to make things simple.

    A new attending has discretionary income of $200,000. Their IBR payment is $2,500 a month, whereas REPAYE would calculate a payment of $1,666. If your 10 year standard repayment amount is $2,400 then you just bought yourself an interest capitalization and and a payment significantly higher than REPAYE. Why not switch to REPAYE, soak up the capitalization that would happen anyways, and take the lower payment?

    Just wondering if you have some more insight into a situation like this, or any reasons you could think of why this would be a bad idea. Thanks!

    Reply
    • Absolutely, there are plenty of reasons. Particularly for PSLF if the payments are lower, that’s a good reason to switch, with the caveat that the trajectory of income change matters. While 10% is less than 15%, the lack of an income cap means payments in REPAYE can be higher than IBR when income rises sufficiently.

      Reply

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